Semi-Annual Report March 31, 2016 BlueStar TA-BIGITech Israel Technology ETF Ticker: ITEQ. The Fund is a series of FactorShares Trust.

Transcription

1 Semi-Annual Report March 31, 2016 BlueStar TA-BIGITech Israel Technology ETF Ticker: ITEQ The Fund is a series of FactorShares Trust.

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3 TABLE OF CONTENTS March 31, 2016 BlueStar TA-BIGITech TM Israel Technology ETF Page Shareholders Letter 2 Growth of $10,000 Investment 3 Top 10 Holdings 4 Important Disclosures and Key Risk Factors 5 Portfolio Allocations 6 Schedules of Investments 7 Statements of Assets and Liabilities 11 Statements of Operations 12 Statements of Changes in Net Assets 13 Financial Highlights 14 Notes to the Financial Statements 15 Supplementary Information 22 Approval of Advisory Agreements and Board Considerations 23 Expense Examples 25

4 Dear Shareholder, On behalf of the entire team, we want to express our appreciation for the confidence you have placed in the Bluestar TA-BIGITech Israel Technology Exchange-Traded Fund ( ITEQ or the Fund ). The following information pertains to the fiscal period from November 3, 2015 (the Fund s Inception Date) to March 31, The Fund saw negative performance during the fiscal period ended March 31, The NAV price for ITEQ fell -4.43%, while the TASE-Bluestar Israel Global Technology Index ( Index ), the Fund s benchmark, fell -4.14% over the same period. The difference was primarily attributable to Fund expenses that are not a part of the Index. For the period ended March 31, 2016, the best performing securities in the Fund were Plus500 (up 53.96%), Orbotech (up 43.17%) and Solaredge Technologies (up 38.97%). The worst performing securities in the Fund were Chiasma (down %), Alcobra (down %) and Supercom (down %). Global markets saw a sell off to begin 2016 on the back of falling oil prices and uncertainty around global growth and future actions of the Federal Reserve. From mid-february to the end of the period on March 31, 2016, global markets staged a comeback, leaving the Fund and the index it tracks slightly negative for the fiscal period. We believe Israeli companies play an essential role in the global high technology value chain. Most technology users, from online shoppers to Fortune 500 companies, use Israeli technology applications and solutions every day without ever being aware of it. From cybersecurity and defense to clean energy and agriculture, Israeli innovations power some of the biggest names in the tech industry today. There are seven technology sub-- industries in particular where Israeli companies have greater than a 5% market share worldwide1: 3D Printing (45%) Advanced Driver Assistance (28%) Cybersecurity Software (23%) Communications Software (13%) App-Specific Input/Output & Storage (13%) Geothermal Energy (8%) Business Process Outsourcing (5%) Even in industries where Israeli companies do not have dominant individual market share, the collective footprint of Israeli companies is significant in many key technology subsectors, and Israelbased Research & Development and non-public companies are usually significant contributors to that same sub-industry s ecosystem. There is much ahead for Israeli Technology companies and we are thankful you have joined us. You can find further details about ITEQ by visiting or by calling ETF- MGRS. ( ). Sincerely, Samuel Masucci III Chairman of the Board Samuel Masucci III is a registered representative of ALPS Distributors, Inc. 1 Bloomberg, BlueStar Global Investors LLC, September 30,

5 $13,000 BlueStar TA BIGITech TM Israel Technology ETF Growth of $10,000 (Unaudited) $12,000 $11,000 $10,000 $9,000 $8,000 BlueStar TA BIGITech Israel Technology ETF (NAV) S&P 500 Index BlueStar TA BIGITech Israel Technology ETF (Market) TASE BlueStar Israel Global Technology Index Cumulative Returns Since Inception Period Ended March 31, 2016 (11/2/2015) BlueStar TA-BIGITech TM Israel Technology ETF (NAV) -4.43% BlueStar TA-BIGITech TM Israel Technology ETF (Market) -3.84% S&P 500 Index -1.13% BlueStar Israel Global Technology TM Index -4.14% Total Fund Operating Expenses % 1. The expense ratio is taken from the Fund s most recent prospectus dated October 21, Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. All performance is historical and includes reinvestment of dividends and capital gains. Performance data current to the most recent month end may be obtained by calling ETF-MGRS ( ). The chart illustrates the performance of a hypothetical $10,000 investment made on November 2, 2015, and is not intended to imply any future performance. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions from the redemption of fund shares. The chart assumes reinvestment of capital gains and dividends, if any. The unmanaged indices do not reflect fees and are not available for direct investment. 3

6 Top Ten Holdings* % of Total Security Investments 1 Amdocs Ltd % 2 Check Point Software Technologies Ltd % 3 Mobileye NV 8.81% 4 Mellanox Technologies Ltd. 5.90% 5 NICE-Systems Ltd. 5.06% 6 OPKO Health, Inc. 4.28% 7 Elbit Systems Ltd. 4.21% 8 Verint Systems, Inc. 3.76% 9 Ormat Technologies, Inc. 2.96% 10 Imperva, Inc. 2.77% Top Ten Holdings = 59.21% of Total Investments * Current Fund holdings may not be indicative of future Fund holdings. Percentage of total investments less cash. 4

7 Important Disclosures and Key Risk Factors BlueStar TA-BIGITech TM Israel Technology ETF Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The BlueStar TA-BIGITech TM Israel Technology ETF (the Fund ) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the TASE-BlueStar Israel Global Technology Index TM ( TA-BIGITech TM or the Index ). Investment in securities of Israeli companies involves risks that may negatively affect the value of your investment in the Fund. Among other things, Israel s economy depends on imports of certain key items, such as crude oil, coal, grains, raw materials and military equipment. Foreign investing involves special risks such as currency fluctuations and political uncertainty. Funds that invest in smaller companies may experience greater volatility. Funds that emphasize investments in technology generally will experience greater price volatility. The Fund's return may not match or achieve a high degree of correlation with the return of the TA-BIGITech Index. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index. Diversification does not guarantee a profit, nor does it protect against a loss in a declining market. The Fund is new with limited operating history. The TASE- BlueStar Israel Technology Index (TA-BIGITech ) is an index of more than 60 Israeli technology companies listed on global stock exchanges in Tel Aviv, New York, London and elsewhere. S&P 500: The S&P 500 Index is the Standard & Poor s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. 5

8 PORTFOLIO ALLOCATIONS As of March 31, 2016 (Unaudited) BlueStar TA- BIGITech TM Israel Technology ETF As a percent of Net Assets: Guernsey 11.4% Isle of Man 0.2 Israel 52.7 Jersey 0.4 Netherlands 8.7 Netherlands Antilles 1.0 United Kingdom 3.3 United States 21.0 Short-Term and other Net Assets (Liabilities) % 6

9 Schedule of Investments March 31, 2016 (Unaudited) Shares Market Value COMMON STOCKS % Guernsey % IT Services % Amdocs Ltd. 6,444 $ 389,346 Technology Hardware, Storage & Peripherals - 0.6% SafeCharge International Group Ltd. 5,841 21,602 Total Guernsey 410,948 Isle Of Man - 0.2% Media - 0.2% Crossrider PLC (a) 14,891 7,806 Israel % Aerospace & Defense - 4.2% Elbit Systems Ltd. 1, ,778 Biotechnology - 1.0% Enzymotec Ltd. (a) 2,061 18,610 Kamada Ltd. (a) 4,109 15,862 Total Biotechnology 34,472 Chemicals - 0.5% Evogene Ltd. (a) 2,932 19,561 Communications Equipment - 4.6% Allot Communications Ltd. (a) 3,760 19,580 AudioCodes Ltd. (a) 4,380 20,301 Ceragon Networks Ltd. (a) 12,787 16,239 Ituran Location And Control Ltd. 1,501 29,495 RADCOM Ltd. (a) 1,327 18,167 Radware Ltd. (a) 3,171 37,513 Silicom Ltd ,059 Total Communications Equipment 166,354 Diversified Financial Services - 1.0% Elron Electronic Industries Ltd. (a) 2,894 13,198 Hilan Ltd. 1,523 20,512 Total Diversified Financial Services 33,710 Electronic Equipment, Instruments & Components - 2.0% Orbotech Ltd. (a) 2,515 59,806 SuperCom Ltd. (a) 2,862 11,391 Total Electronic Equipment, Instruments & Components 71,197 Health Care Equipment & Supplies - 2.4% Brainsway Ltd. (a) 2,410 10,464 Mazor Robotics Ltd. (a) 4,981 30,235 ReWalk Robotics Ltd. (a) ^ 2,083 19,580 Syneron Medical Ltd. (a) 3,502 25,600 Total Health Care Equipment & Supplies 85,879 The accompanying notes are an integral part of these financial statements. 7

10 Schedule of Investments March 31, 2016 (Unaudited) (Continued) Household Durables - 0.5% Maytronics Ltd. 6,348 $ 16,401 Internet Software & Services - 1.8% CYREN Ltd. (a) 9,013 15,232 Wix.com Ltd. (a) 2,353 47,695 Total Internet Software & Services 62,927 IT Services - 0.6% Matrix IT Ltd. 3,617 23,158 Machinery - 1.2% Kornit Digital Ltd. (a) 1,560 15,522 Sarine Technologies Ltd. 23,100 28,621 Total Machinery 44,143 Pharmaceuticals - 3.3% Alcobra Ltd. (a) 3,325 12,602 BioLine RX Ltd. (a) 10,657 11,156 Compugen Ltd. (a) 4,833 27,290 Foamix Pharmaceuticals Ltd. (a) 2,673 17,427 MediWound Ltd. (a) 1,716 13,848 Neuroderm Ltd. (a) 1,230 17,368 Redhill Biopharma Ltd. (a) 15,060 17,621 Total Pharmaceuticals 117,312 Semiconductors & Semiconductor Equipment - 8.2% Mellanox Technologies Ltd. (a) 3, ,626 Nova Measuring Instruments Ltd. (a) 2,560 26,648 Tower Semiconductor Ltd. (a) 4,869 60,042 Total Semiconductors & Semiconductor Equipment 295,316 Software % Attunity Ltd. (a) 1,761 12,609 Check Point Software Technologies Ltd. (a) ^ 4, ,560 CyberArk Software Ltd. (a) ^ 1,404 59,853 Formula Systems 1985 Ltd ,657 Magic Software Enterprises Ltd. ^ 3,332 22,558 NICE-Systems Ltd. 2, ,891 Perion Network Ltd. (a) 5,797 11,720 Total Software 682,848 Technology Hardware, Storage & Peripherals - 2.4% Stratasys Ltd. (a) ^ 3,256 84,396 Total Israel 1,886,452 Jersey - 0.4% Media - 0.4% XLMedia PLC 13,342 13,893 Netherlands - 8.7% Software - 8.7% Mobileye NV (a) ^ 8, ,707 The accompanying notes are an integral part of these financial statements. 8

11 Schedule of Investments March 31, 2016 (Unaudited) (Continued) Netherlands Antilles - 1.0% Software - 1.0% Sapiens International Corporation NV 2,649 $ 31,530 United Kingdom - 3.3% Communications Equipment - 0.7% Telit Communications PLC 8,091 25,391 Diversified Financial Services - 1.3% Plus500 Ltd. 5,569 49,231 Hotels, Restaurants & Leisure - 1.0% 888 Holdings PLC 11,587 35,322 Media - 0.3% Matomy Media Group Ltd. (a) 9,606 11,624 Total United Kingdom 121,568 United States % Biotechnology - 2.0% Brainstorm Cell Therapeutics, Inc. (a) 4,980 13,297 Chiasma, Inc. (a) ^ 916 8,391 Medgenics, Inc. (a) 3,544 15,594 Pluristem Therapeutics Ltd. (a) 13,802 21,686 Protalix BioTherapeutics, Inc. (a) 16,799 14,316 Total Biotechnology 73,284 Communications Equipment - 0.6% Gilat Satellite Networks Ltd. (a) 4,707 21,929 Electric Utilities - 3.0% Ormat Technologies, Inc. 2, ,759 Health Care Equipment & Supplies - 0.2% EndoChoice Holdings, Inc. (a) 1,643 8,560 Pharmaceuticals - 4.6% OPKO Health, Inc. (a) 15, ,510 Oramed Pharmaceuticals, Inc. (a) 1,741 11,595 Total Pharmaceuticals 163,105 Semiconductors & Semiconductor Equipment - 2.8% CEVA, Inc. (a) 1,747 39,308 DSP Group, Inc. (a) 2,368 21,596 SolarEdge Technologies, Inc. (a) 1,554 39,068 Total Semiconductors & Semiconductor Equipment 99,972 Software - 7.8% Imperva, Inc. (a) ^ 1,938 97,869 LivePerson, Inc. (a) 4,946 29,271 Varonis Systems, Inc. (a) 1,208 22,046 Verint Systems, Inc. (a) 3, ,919 Total Software 282,105 Total United States 753,714 TOTAL COMMON STOCKS (Cost $3,610,231) 3,537,618 The accompanying notes are an integral part of these financial statements. 9

12 Schedule of Investments March 31, 2016 (Unaudited) (Continued) SHORT-TERM INVESTMENTS % Mount Vernon Prime Portfolio, 0.54% (b) + 634,930 $ 634,930 TOTAL SHORT-TERM INVESTMENTS (Cost $634,930) 634,930 Total Investments (Cost $4,245,161) % 4,172,548 Liabilities in Excess of Other Assets - (16.4)% (588,730) TOTAL NET ASSETS % $ 3,583,818 Percentages are stated as a percent of net assets. (a) Non-income producing security. (b) The rate quoted is the annualized seven-day yield at March 31, ^ All or a portion of this security is out on loan as of March 31, Total value of securities out on loan is $630, Investments purchased with cash proceeds from securities lending. Total cash collateral has a value of $634,930 as of March 31, The Global Industry Classification Standard (GICS ) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor's Financial Services LLC ("S&P"). GICS is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Fund's Administrator, U.S. Bancorp Fund Services, LLC. The accompanying notes are an integral part of these financial statements. 10

13 STATEMENT OF ASSETS AND LIABILITIES As of March 31, 2016 (Unaudited) BlueStar TA- BIGITech TM Israel Technology ETF ASSETS Investments in securities, at value* $ 4,172,548 Cash 43,760 Receivable for investments sold 3 Dividends and interest receivable 5,920 Securities Lending income receivable 844 Total Assets 4,223,075 LIABILITIES Payable for investments purchased 2,452 Collateral received for securities loaned (Note 7) 634,930 Management fees payable 1,875 Total Liabilities 639,257 Net Assets $ 3,583,818 NET ASSETS CONSIST OF: Paid-in Capital $ 3,656,040 Undistributed (accumulated) net investment income (loss) 3,460 Accumulated net realized gain (loss) on investments (3,060) Net unrealized appreciation (depreciation) on: Investments in securities (72,613) Foreign currency and translation of other assets and liabilities in foreign currency (9) Net Assets $ 3,583,818 *Identified Cost: Investments in securities $ 4,245,161 Shares Outstanding^ 150,000 Net Asset Value, Offering and Redemption Price per Share $ ^ No par value, unlimited number of shares authorized The accompanying notes are an integral part of these financial statements. 11

14 STATEMENT OF OPERATIONS For the period ended March 31, 2016 (Unaudited) BlueStar TA- BIGITech TM Israel Technology ETF 1 INVESTMENT INCOME Income: Dividends from unaffiliated securities (net of foreign withholdings tax of $1,127) $ 9,645 Securities Lending Income 1,268 Total Investment Income 10,913 Expenses: Management fees 7,453 Total Expenses 7,453 Net Investment Income (Loss) 3,460 REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS Net Realized Gain (Loss) on: Unaffiliated investments (5,132) Foreign currency 2,072 Net Change in Unrealized Appreciation (Depreciation) of: Unaffiliated investments in securities and foreign currency (72,613) Foreign currency (9) Net Realized and Unrealized Gain (Loss) on Investments (75,682) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (72,222) 1 Fund commenced operations on November 2, The information presented is for the period from November 2, 2015 to March 31, The accompanying notes are an integral part of these financial statements. 12

15 STATEMENT OF CHANGES IN NET ASSETS Period ended March 31, 2016 (Unaudited)* OPERATIONS Net investment income (loss) $ 3,460 Net realized gain (loss) on investments (3,060) Net change in unrealized appreciation (depreciation) of investments (72,622) Net increase (decrease) in net assets resulting from operations (72,222) DISTRIBUTIONS TO SHAREHOLDERS From net investment income - CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets derived from net change in outstanding shares (a) 3,656,040 Net increase (decrease) in net assets $ 3,583,818 NET ASSETS Beginning of Period $ - End of Period 3,583,818 Undistributed net investment income (loss) $ 3,460 (a) Summary of share transactions is as follows: Period Ended March 31, 2016 (Unaudited) Shares Amount Shares Sold 150,000 $3,656,040 Reinvested Dividends - - Shares Redeemed ,000 $3,656,040 Beginning Shares - Ending Shares 150,000 *Fund commenced operations on November 2, The information presented is for the period from November 2, 2015 to March 31, The accompanying notes are an integral part of these financial statements. 13

16 FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period Period Ended March 31, 2016 (Unaudited) 1 Net Asset Value, Beginning of Period $ Income (Loss) from Investment Operations: Net investment income (loss) Net realized and unrealized gain (loss) on investments (1.14) Total from investment operations (1.11) Less Distributions: Distributions from net investment income - Total distributions - Net asset value, end of period $ Total Return -4.43% 3 Ratios/Supplemental Data: Net assets at end of period (000's) $ 3,584 Expenses to Average Net Assets 0.75% 4 Net Investment Income (Loss) to Average Net Assets 0.35% 4 Portfolio Turnover Rate 10% 3 1 Commencement of operations on November 2, Calculated based on average shares outstanding during the period. 3 Not annualized. 4 Annualized. The accompanying notes are an integral part of these financial statements. 14

17 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) NOTE 1 ORGANIZATION BlueStar TA-BIGITech TM Israel Technology ETF (the Fund ) is a series of FactorShares Trust (the Trust ), an open-end management investment company consisting of multiple investment series, organized as a Delaware statutory trust on July 1, The Trust is registered with the SEC under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open-end management investment company and the offering of the Fund s shares ( Shares ) is registered under the Securities Act of 1933, as amended (the Securities Act ). The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the TASE- BlueStar Israel Global Technology Index. The Fund commenced operations on November 2, The Fund currently offers one class of shares, which has no front end sales load, no deferred sales charges, and no redemption fees. The Fund may issue an unlimited number of shares of beneficial interest, with no par value. All shares of the Fund have equal rights and privileges. Shares of the Fund are listed and traded on the NASDAQ Stock Market, LLC. Market prices for the Shares may be different from their net asset value ( NAV ). The Fund issues and redeems Shares on a continuous basis at NAV only in blocks of 50,000 shares, called Creation Units. Creation Units are issued and redeemed principally in-kind for securities included in a specified Index. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in quantities less than a Creation Unit. Except when aggregated in Creation Units, Shares are not redeemable securities of a Fund. Shares of a Fund may only be purchased or redeemed by certain financial institutions ( Authorized Participants ). An Authorized Participant is either (i) a brokerdealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a DTC participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants nor have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem the Shares directly from a Fund. Rather, most retail investors may purchase Shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ). A. Security Valuation. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on the valuation date (or at approximately 4:00 pm Eastern Time if a security s primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees (the Board ). When a security is fair valued, consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the pricing procedures adopted by the Fund s Board. The use of fair value pricing by a fund may cause the net asset value of its shares to differ 15

18 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) significantly from the net asset value that would be calculated without regard to such considerations. As of March 31, 2016, the Fund did not hold any fair valued securities. As described above, the Fund utilizes various methods to measure the fair value of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Level 2 Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The following is a summary of the inputs used to value the Fund s investments as of March 31, 2016: BlueStar TA-BIGITech TM Israel Technology ETF Assets^ Level 1 Level 2 Level 3 Total Common Stocks $3,537,618 $ $ $3,537,618 Short-Term Investments 634, ,930 Total Investments in Securities $4,172,548 $ $ $4,172,548 ^ See Schedule of Investments for classifications by sector or country. There were no transfers between Levels 1, 2 and 3 during the period ended March 31, Transfers between levels are recognized at the end of the reporting period. 16

19 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) B. Federal Income Taxes. The Fund has elected to be taxed as a regulated investment company and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provisions for federal income taxes or excise taxes have been made. To avoid imposition of the excise tax applicable to regulated investment companies, the Fund intends to declare each year as dividends, in each calendar year, at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. Net capital losses incurred after October 31, within the taxable year are deemed to arise on the first business day of the Fund s next taxable year. The Fund recognizes the tax benefits of uncertain tax positions only where the position is more likely than not to be sustained assuming examination by tax authorities. The Fund has analyzed its tax position and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions expected to be taken in the Fund s 2016 tax returns. The Fund identifies its major tax jurisdictions as U.S. Federal, the State of New Jersey, and the State of Delaware; however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. C. Security Transactions and Investment Income. Investment securities transactions are accounted for on the trade date. Gains and losses realized on sales of securities are determined on a specific identification basis. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Income, including gains, from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries. D. Foreign Currency Translations and Transactions. The Fund may engage in foreign currency transactions. Foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities, assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. For financial reporting purposes, the Fund does not isolate changes in the exchange rate of investment securities from the fluctuations arising from changes in the market prices of securities for unrealized gains and losses. However, for federal income tax purposes, the Fund does isolate and treat as ordinary income the effect of changes in foreign exchange rates on realized gains or losses from the sale of investment securities and payables and receivables arising from trade-date and settlement-date differences. E. Distributions to Shareholders. Distributions to shareholders from net investment income are declared and paid for the Fund on a quarterly basis. Net realized gains on securities for the Fund normally are declared and paid on an annual basis. Distributions are recorded on the ex-dividend date. F. Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 17

20 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) G. Share Valuation. The net asset value ( NAV ) per share of the Fund is calculated by dividing the sum of the value of the securities held by the Fund, plus cash and other assets, minus all liabilities (including estimated accrued expenses) by the total number of shares outstanding for the Fund, rounded to the nearest cent. The Fund s shares will not be priced on the days on which the NYSE is closed for trading. The offering and redemption price per share for the Fund is equal to the Fund s net asset value per share. H. Guarantees and Indemnifications. In the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. NOTE 3 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Derivatives and Hedging Topic of the Codification (Accounting Standards Codification 815, formerly Statement of Financial Accounting Standards ( SFAS ) 133 and SFAS 161) requires enhanced disclosures about the Fund s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund s financial position, performance and cash flows. The Fund did not use derivatives during the period ended March 31, NOTE 4 COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS. Factor Advisors, LLC (the Advisor ), serves as the investment advisor to the Fund. Pursuant to an Investment Advisory Agreement ( Advisory Agreement ) between the Trust, on behalf of the Fund, and the Advisor, the Advisor provides investment advice to the Fund and oversees the day-to-day operations of the Fund, subject to the direction and control of the Board and the officers of the Trust. Under the Advisory Agreement, the Advisor is also responsible for arranging transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Fund to operate. Under the Investment Advisory Agreement with the Fund, the Advisor has overall responsibility for the general management and administration of the Fund and arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution related services necessary for the Fund to operate. The Advisor bears the costs of all advisory and non-advisory services required to operate the Fund, in exchange for a single unitary fee. For services provided the Fund pays the Advisor at an annual rate of 0.75% of the Fund s average daily net assets. The Advisor has an agreement with, and is dependent on, a third party to pay the Fund s expenses in excess of 0.75% of the Fund s average daily net assets. Additionally, under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Fund, except for: the fee paid to the Advisor pursuant to the Investment Advisory Agreement, interest charges on any borrowings, taxes, brokerage commissions and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, acquired fund fees and expenses, accrued deferred tax liability, extraordinary expenses, and distribution (12b-1) fees and expenses (collectively, Excluded Expenses ). The Advisor has entered into an Agreement with ITEQ ETF Partners, LLC (the Sponsor ), under which the Sponsor agrees to sublicense the use of the Underlying Index to the Advisor. The Sponsor also provides marketing support for the Fund, including distributing marketing materials related to the Fund. ITEQ ETF Partners, LLC is a privately held business focused on bringing exchange-traded investment products to investors in the U.S. The Sponsor does not make 18

21 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) investment decisions, provide investment advice, or otherwise act in the capacity of an investment adviser to the Fund. Additionally, the Sponsor is not involved in the maintenance of the Underlying Index and does not otherwise act in the capacity of an index provider. US Bancorp Fund Services, LLC (the Administrator ) provides fund accounting, fund administration, and transfer agency services to the Fund. The Advisor compensates the Administrator for these services under an administration agreement between the two entities. The Advisor pays each independent Trustee a quarterly fee for service to the Fund. Each Trustee is also reimbursed by the Advisor for all reasonable out-of-pocket expenses incurred in connection with his duties as Trustee, including travel and related expenses incurred in attending Board meetings. NOTE 5 DISTRIBUTION PLAN The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may pay compensation to the Distributor or any other distributor or financial institution with which the Trust has an agreement with respect to the Fund, with the amount of such compensation not to exceed an annual rate of 0.25% of each Fund s daily average net assets. For the period ended March 31, 2016, the Fund did not incur any 12b-1 expenses. NOTE 6 - PURCHASES AND SALES OF SECURITIES The costs of purchases and sales of securities, excluding short-term securities and in-kind transactions, for the period ended March 31, 2016: Purchases Sales BlueStar TA-BIGITech TM Israel Technology ETF $ 326,766 $ 266,145 The costs of purchases and sales of in-kind transactions associated with creations and redemptions for the period ended March 31, 2016: 19 Purchases In- Sales In- Kind Kind BlueStar TA-BIGITech TM Israel Technology ETF $3,589,255 $ - Purchases in-kind are the aggregate of all in-kind purchases and sales in-kind are the aggregate of all proceeds from in-kind sales. Net capital gains or losses resulting from in-kind redemptions are excluded from the Fund s taxable gains and are not distributed to shareholders. During the period ended March 31, 2016, the Fund incurred broker commissions to affiliated broker Penserra LLC in the amount of $43. There were no purchases or sales of U.S. Government obligations for the period ended March 31, NOTE 7 SECURITIES LENDING The Fund may lend up to 331 3% of the value of the securities in its portfolio to brokers, dealers and financial institutions (but not individuals) under terms of participation in a securities lending program

22 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) administered by U.S. Bank N.A. ( the Custodian ). The securities lending agreement requires that loans are collateralized at all times in an amount equal to at least 102% of the value of any loaned securities at the time of the loan, plus accrued interest. The Fund receives compensation in the form of fees and earn interest on the cash collateral. The amount of fees depends on a number of factors including the type of security and length of the loan. The Fund continues to receive interest payments or dividends on the securities loaned during the borrowing period. Gain or loss in the fair value of securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the terms of the securities lending agreement to recall the securities from the borrower on demand. As of March 31, 2016, the Fund had loaned securities and received cash collateral for the loans. The cash collateral is invested by the Custodian in accordance with approved investment guidelines. Those guidelines require the cash collateral to be invested in readily marketable, high quality, short-term obligations; however, such investments are subject to risk of payment delays or default on the part of the issuer or counterparty or otherwise may not generate sufficient interest to support the costs associated with securities lending. The Fund could also experience delays in recovering its securities and possible loss of income or value if the borrower fails to return the borrowed securities, although the Fund is indemnified from this risk by contract with the securities lending agent. As of March 31, 2016, the value of the securities on loan and payable for collateral due to broker were as follows: Value of Securities on Loan Collateral Received Values of Fund Securities Collateral Fund on Loan Received* BlueStar TA-BIGITech TM Israel Technology ETF $ 630,375 $ 634,930 * The cash collateral received was invested in the Mount Vernon Securities Lending Prime Portfolio as shown on the Schedule of Investments, a money market fund with an overnight and continuous maturity. Fees and interest income earned on collateral investments and recognized by the Fund during the period ended March 31, 2016, were as follows: Fees and Interest Income Earned Fees and Interest Income Fund Earned BlueStar TA-BIGITech TM Israel Technology ETF $ 1,268 Offsetting Assets and Liabilities The Fund is subject to various netting arrangements, which govern the terms of certain transactions with counterparties. The arrangements allow the Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all transactions governed under a single agreement with a counterparty. The following is a summary of the arrangements subject to offsetting as of March 31,

23 NOTES TO FINANCIAL STATEMENTS March 31, 2016 (Unaudited) Fund BlueStar TA- BIGITech TM Israel Technology ETF Description Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Assets & Liabilities Net Amounts Presented in the Statement of Assets & Liabilities Collateral Received Net Amount Securities Lending $ 634,930 $ 634,930 $ - $ 634,930 $ - NOTE 8 DISTRIBUTIONS TO SHAREHOLDERS The Fund did not pay any distributions from ordinary income or capital gains during the period ended March 31, NOTE 9 SUBSEQUENT EVENTS In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. At a special meeting held on May 24, 2016, the Trustees, including a majority of the Trustees who are not interested persons of the Trust (as defined in the 1940 Act), ratified the transfer of the Investment Advisory Agreement between Factor Advisors and the Trust (the Advisory Agreement ), to, and the assumption of the Agreement by, ETF Managers Group LLC ( ETF Managers ), effective April 26, ETF Managers is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended, with the same ownership and identical personnel as Factor Advisors. Such transfer and assumption of the Agreement does not amount to an assignment of such Agreement under the 1940 Act. Therefore, the Agreement remains in effect with ETF Managers serving as the investment adviser to the Fund. At the special meeting held on May 24, 2016, the Board approved changing the name of the Trust to ETF Managers Trust, effective June 24,

24 SUPPLEMENTARY INFORMATION March 31, 2016 (Unaudited) Disclosure of Portfolio Holdings The Fund files a Form N-Q with the Securities and Exchange Commission (the SEC ) no more than sixty days after the Fund s first and third fiscal quarters. For the Fund, this would be for the fiscal quarters ending June 30 and December 31. Form N-Q includes a complete schedule of the Fund s portfolio holdings as of the end of those fiscal quarters. The Fund s N-Q filings can be found free of charge on the SEC s website at or they may be reviewed and copied at the SEC s Public Reference Room in Washington, D.C. (call 800-SEC-0330 for information on the operation of the Public Reference Room). Voting Proxies on Fund Portfolio Securities A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 are available without charge, upon request, by calling or on the SEC s website at Carefully consider the Fund s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Fund s prospectus, which may be obtained by calling ETF-MGRS ( ) or by visiting Read the prospectus carefully before investing. 22

25 APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS For the Period Ended March 31, 2016 (Unaudited) Pursuant to Section 15(c) of the Investment Company Act of 1940 (the 1940 Act ), at a meeting held on September 10, 2015, the Board of Trustees (the Board ) of FactorShares Trust (the Trust ) considered the approval of the following agreements (collectively, the Agreements ): the Advisory Agreement between Factor Advisors, LLC (the Adviser ) and the Trust, on behalf of the BlueStar TA BIGITech TM Israel Technology ETF (the Fund ); and the Sub-Advisory Agreement between the Adviser and Penserra Capital Management LLC (the Sub-Adviser ) with respect to the Fund. The Agreements must be approved: (i) by the vote of the Trustees or by a vote of the shareholders of the Fund; and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or interested persons of any party thereto, as defined in the 1940 Act (the Independent Trustees ), cast in person at a meeting called for the purpose of voting on such approval. Each year after the initial two-year term, the Board will call and hold a meeting to decide whether to renew the Agreements for an additional one-year term. In preparation for such meetings, the Board requests and reviews a wide variety of information from the Adviser and the Sub-Adviser. Prior to and at the meeting held on September 10, 2015 the Board, including the Independent Trustees, reviewed written and oral information from the Advisor and the Sub-Adviser regarding, among other things: (i) the nature, extent and quality of the services to be provided to the Fund s shareholders by the Adviser and the Sub-Adviser; (ii) the Adviser s and the Sub-Adviser s cost and profits they will realize in providing their services, including any fall-out benefits enjoyed by the Adviser and the Sub- Adviser; (iii) comparative fee and expense data for the Fund and other investment companies with similar investment objectives; (iv) the extent to which economies of scale would be realized as the Fund grows and whether the proposed advisory fee for the Fund reflects these economies of scale for the benefit of the Fund; and (v) other financial benefits to the Adviser and Sub-Adviser and their affiliates resulting from services rendered to the Fund. The Board s review included relevant information furnished to the Board throughout the year. Among other things, representatives from the Adviser and the Sub-Adviser provided overviews of their advisory businesses, including investment personnel and investment processes. The Adviser and Sub-Adviser each discussed its experience with exchange-traded funds. The representatives discussed the services to be provided by the Sub-Adviser, which would be responsible for executing purchase and sale transactions in the Fund. The representatives also discussed the rationale for launching the Fund, the Fund s fees and fee structures of comparable investment companies. The Board then discussed the written materials that it received before the meeting and throughout the year and the Adviser and Sub-Adviser s oral presentations and any other information that the Board received at the meeting, and deliberated on the approval of the Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information discussed below that was all-important or controlling. Nature, Extent and Quality of Services Provided by the Adviser and the Sub-Adviser The Trustees considered the scope of services provided under the Advisory Agreement, noting that the Adviser will be providing investment management services to the Fund. In considering the nature, extent and quality of the services provided by the Adviser, the Board reviewed the quality of the Adviser s compliance infrastructure. The Board also considered the Adviser s experience managing ETFs, including other series of the Trust. The Board also considered other services to be provided to the Fund, such as overseeing the activities of the Sub-Advisor, as well as the Fund s other service providers, monitoring adherence to the Fund s investment restrictions, and monitoring compliance with various policies and procedures and with applicable securities regulations. 23

26 APPROVAL OF ADVISORY AGREEMENT & BOARD CONSIDERATIONS For the Period Ended March 31, 2016 (Unaudited) (Continued) The Trustees then considered the scope of services to be provided under the Sub-Advisory Agreement, noting that Sub-Adviser will be providing investment management services to the Fund. The Board discussed the responsibilities of the Sub-Adviser, including: responsibility for the general management of the day-to-day investment and reinvestment of the assets of the Fund; determining the daily baskets of deposit securities and cash components; executing portfolio security trades for purchases and redemptions of Fund shares conducted on a cash-in-lieu basis; oversight of general portfolio compliance with relevant law; responsibility for daily monitoring of tracking error and quarterly reporting to the Board; and implementation of Board directives as they relate to the Fund. In considering the nature, extent and quality of the services to be provided by the Sub-Advisor, the Board considered the history and experience Sub-Adviser has as an investment advisor, as well the experience of its personnel in managing ETFs. Based on the factors above, as well as those discussed below, the Board concluded that it was satisfied with the nature, extent and quality of the services to be provided to the Fund by the Adviser and the Sub-Adviser. Cost of Services Provided and Economies of Scale The Board reviewed the Fund s estimated expense ratio and the advisory fee to be paid by the Fund, considered the expense ratios of comparable Funds. The Board also took into consideration management s discussion of the fees and other factors considered. The Board concluded that the advisory fee was reasonable and the result of arm s length negotiations. Additionally, the Board took into consideration that the advisory fees, along with most of the Fund s other operating expenses, would be paid by the Adviser. The Board also evaluated the compensation and benefits expected to be received by the Adviser from its relationship with the Fund. The Board determined that the Adviser is likely to realize economies of scale in managing the Fund as assets grow in size and intends to monitor fees as the Fund grows in size and determine whether fee breakpoints may be warranted The Board then reviewed the advisory fee to be paid by the Adviser to the Sub-Adviser for its services as Sub-Adviser to the Fund. The Board considered that the fees paid to the Sub-Adviser would be paid by the Adviser from the advisory fee the Adviser will receive and noted that the fee reflected an armslength negotiation between the Adviser and the Sub-Adviser. The Board concluded that the subadvisory fees were reasonable. Based on the Board s deliberations and its evaluation of the information described above, the Board, including the Independent Trustees, unanimously: (a) concluded that the terms of the Agreements are fair and reasonable; (b) concluded that the Adviser s and Sub- Adviser s fees are reasonable in light of the services that the Adviser and Sub-Adviser will provide to the Fund; and (c) agreed to approve the Agreements for an initial term of two years. 24

27 Expense Example For the Period Ended March 31, 2016 (Unaudited) As a shareholder of BlueStar TA-BIGITech TM Israel Technology ETF (the Fund ) you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of Fund shares, and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (November 2, 2015 to March 31, 2016). Actual Expenses The first line of the table provides information about actual account values based on actual returns and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then, multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period'' to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. BlueStar TA-BIGITech TM Israel Technology ETF Beginning Ending Account Value Account Value Expenses Paid November 2, 2015 March 31, 2016 During the Period^ Actual $ 1, $ $ 3.15 Hypothetical (5% annual) $ 1, $ 1, $ 3.25 ^ The dollar amounts shown as expenses paid during the period are equal to the annualized sixmonth expense ratio multiplied by the average account value during the period, multiplied by 151/366 (to reflect the period from November 2, 2015 to March 31,